Diamond firm's books of accounts held adequate under Act despite lacking detailed qualitative diamond specifications

The ITAT Mumbai held that the assessee diamond firm's books of accounts were maintained in accordance with the Act for AY 2017-18. The tribunal found that quantitative details of diamonds were adequately maintained, and qualitative details (piece-wise, color-wise, grade-wise) were not required under the Act. The AO had estimated GP at 5.55% while CIT(A) reduced it to 5.12% based on the firm's 5-year average. The tribunal ruled in favor of the assessee, noting that the AO accepted similar explanations for AY 2018-19 and failed to provide comparable cases. The appeal was allowed against the revenue department.

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Issues Involved:
The appeal challenges the additions in the total income of the assessee made by the CIT(A) u/s 143(3) r.w.s. 144 of the Income Tax Act for the assessment year 2017-18 based on estimation due to lack of detailed diamond stock information.

Issue 1: Addition on Account of Gross Profit
The appellant contested the addition of Rs. 1,75,56,107/- in total income, arguing that the CIT(A) erred in confirming it u/s 145(3) of the Act. The appellant explained the unavailability of data as requested by the Assessing Officer and emphasized that the rejection of books and profit estimation lacked merit as the records were available. The appellant highlighted the consistency in accounting methods accepted by the Department in previous and subsequent years. The appellant also pointed out the failure of CIT(A) to consider judicial pronouncements cited in their submissions.

Issue 2: Maintenance of Books of Accounts
The appellant argued that the books of accounts were audited u/s 44AB of the Act and contended that maintaining detailed quality-wise stock records of each diamond was unnecessary. Reference was made to a previous order supporting this argument. The Departmental Representative supported the impugned order and cited relevant case laws. The Tribunal referred to a past order emphasizing that qualitative details of each diamond piece were not essential for income computation and disagreed with the Assessing Officer's view on rejecting the books under Section 145(3) of the Act.

Conclusion:
The Tribunal found in favor of the appellant, holding that the CIT(A) failed to consider relevant facts and laws. The appeal was allowed, setting aside the impugned orders.

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